If Trust in Currencies Erodes, Gold Will Skyrocket

Reports that Germany intends to repatriate the gold that is being stored at the New York Federal Reserve should be supportive for gold prices. The implication here is that trust in fiat currencies is being eroded by central bank involvement. Japan's recent policy change toward a weaker yen, coupled with the Federal Reserve's ongoing bond purchases, is making gold a more attractive asset.

The gold market's reaction to the news, so far, has been positive — but only mildly so. My belief is that if February gold futures can settle above $1,680, this will be an indication of further upside. My initial upside target will be $1,750.

Frankly, I'm surprised that the move in gold has not been bigger, as this count be the beginning of a monumental shift toward "safe haven" wealth storage. When trust is the central issue, markets tend to have enormous moves.